3.

Ratio Analysis

In order to evaluate the firms performance, the investors and managers will use the ratio analysis
in order to analyze the liquidity, profitability and the efficiency of the firm. In this section, we are
going to discuss about the ratio analysis of Malaysia Airline Systems (MAS) Bhd regarding on
these ratios:
a) Profitability ratios
b) Liquidity ratios
c) Debt Management ratios

3.1 Profitability Ratios

According to Investopedia.com, profitability ratios can be define as a class of financial
metrics that are used to assess a business's ability to generate earnings as compared to its
expenses and other relevant costs incurred during a specific period of time. For most of these
ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous
period is indicative that the company is doing well.

3.1.1

Return on Asset
Return on Asset is a ratio that compares the profit that has been produced with the

asset base required and to see whether the company is working hard on their assets. The
ROA for Malaysia Airlines can be seen below:

Year

ROA (%)

2009

7.44

2010

0.87

2011

(20.17)

2012

(2.49)

2013

(5.35)

ROA (%)
10
5
0
2009
-5

2010

2011

2012

2013

-10
-15
-20
-25

Source: Annual Report

Figure 3.1.1 Percentage of ROA for Malaysia Airlines FY 2009 to 2013
The figure above shows the percentage of Return on Assets of Malaysia Airlines. From
the graph, we will look into the highest and the lowest percentage of ROA. A decreasing
trend can be seen from the year of 2009 until 2011 which indicates that the profitability
of the company is deteriorating but the company managed to increase their profitability
back in 2012 to 2013 which shows that the profitability of the company is improving.
From the year of 2009, the ROA for Malaysia Airlines was 7.44 whereby the
company had a good return on their assets and they were able to manage their assets. The
trend shows us that the company was facing a huge loss in net income by the year of
2011 as it possesses a negative 20.17 percent. This is because of the increase of the jet
fuel prices. From the operations, the company had increased their cost regarding on the
fuel and oil of the aircrafts by 1.39 percent whereby they had faced a higher fuel costs
that leads to net loss of RM477.6 million in the third quarter of the year.
Malaysia Airlines was having a bad turn in 2011 but managed to increase the
ROA to negative 2.49 percent but fall again in 2013 by negative 5.35 percent. Their
negative return on assets during these years shows that the company is struggling in
financing their operations.

3.1.2

Return on Equity
The Return on Equity (ROE) ratio is to evaluate and measure the performance of

the profitability by enlightening the amount of profit generated with the money of
investors. The ROE for Malaysia Airlines can be seen below:
Year
2009
2010
2011
2012
2013

ROE (%)
89.90
3.16
(238.73)
(20.15)
(28.85)

ROE (%)
200
100
0
2009
-100

2010

2011

2012

2013

-200
-300

Source: Annual Report

Figure 3.1.2: Percentage of ROE for Malaysia Airlines FY 2009 to 2013
In 2009, the percentage is 89.9 percent which is higher and in 2011, the
percentage is negative 238.73 percent.
We can see here that the graph is dramatically decrease from the year of 2009 to
2011 and back on the right track in 2012 and 2013. In 2011, the use of money of the
investors was for the sake of a new business plan which requires a huge sum of money.
We can see that the company was unable to give a good return to the investors. This ratio
is to see whether the company had used the money from investors to generate more
profits as well as to grow the company. The investors would like to see a positive ROE
nonetheless, Malaysia Airlines provide negative ROEs from the year of 2011 to 2013.
This shows that the company was not generating profit from the investors money
because they used the money to finance the new business plan in 2011 and further in
2013.

3.1.3
Year

Profit Margin

Profit Margin

Profit Margin (%)

(%)
2009

1.34

2010

(5.42)

2011

(18.47)

2012

(3.24)

-10

2013

(8.03)

-15

5
0
2009
-5

2010

2011

2012

2013

-20

Source: Annual Report

Figure 3.1.3: Percentage of Profit Margin Malaysia Airlines FY 2009-2013
The profit margin of the company had declined from 2009 to 2011 rapidly and increases
back in the year of 2012 to 2013. During the year of 2009, Malaysia Airlines reported to
have high earnings but falls to negative 5.42 in the year of 2010 due to the increase of jet
fuel price.
For airlines, the two largest costs are fuel and labor which contribute to this profit
margin. By the year of 2011, the profit margin continues to fall dramatically by negative
18.47 percent whereby during this year, they tried to implement pricing strategy business
plan along with purchasing new aircrafts. The business plan then contribute to a minor
success whereby the company had increased its profit margin in 2012 by negative 3.24
but falls back to negative 8.03 percent in 2013. In 2013, they had faced a tough business
environment when the weakening of Ringgit and negative swing in forex movement had
a huge impact to the cost base of the company. The costs incurred during these three
years were told to be beneficial for the company in future prospects.

3.2

Liquidity Ratios

The short-term liquidity ratios are used in the evaluation of short-term liquidity to convert
current assets into cash in order to reduce the financial obligations of the company as they

become due. These ratios are particularly significant to the creditors and potential lenders of a
company because they determine the ability of that company to meet current payments of a debt
(Hongren, 1996). Nevertheless, the investors are interested to the direct impact of the firms
management towards the current assets and current liabilities of the firm.

3.2.1

Current Ratio

Year

Current

2009
2010
2011
2012
2013

Ratio
1.17
0.73
0.39
0.54
0.80

Current Ratio
1.5
1
0.5
0
2009

2010

2011

2012

2013

Source: Annual Report

Figure 3.2.1: Current Ratio for Malaysia Airlines FY 2009-2013
The changes in Malaysia Airlines current ratio over these five years had shown a
dramatically decrease from the year of 2009 to 2011 as this had pointed out that the
company was facing financial problems.
The highest point of current ratio is in 2009 with 1.17 whereby the general rule of
this ratio is the higher the ratio the better the companys current assets to settle the current
liabilities. This shows that Malaysia Airlines manage to utilize all the current assets and
better in managing in their current liabilities. However, the lowest current ratio from
these five years was in 2011. When the current ratio is to be below than 1, it indicates that
the company has a critical liquidity problem as the total current liabilities were actually
exceeding the total liabilities. In 2011, the current assets of the company increased by
1.48 percent from the previous year and the current liabilities for the year also increased

by 1.51 percent because of the implementation of the new business plan in the third
quarter of the year 2011. From these figures, we can see that the company has higher
current liabilities as to current assets.

3.2.2
Year

Quick

2009
2010
2011
2012
2013

Ratio
0.79
0.65
0.34
0.49
0.66

Quick Ratio

Quick Ratio
1
0.8
0.6
0.4
0.2
0
2009

2010

2011

2012

2013

Source: Annual Report

Figure 3.2.2: Quick Ratio for Malaysia Airlines FY 2009-2013
The trend of this quick ratio from the year of 2009 to 2011 decrease significantly and the
company was able to bring up the value of the ratio from the year of 2012 to 2013. The
highest quick ratio was in 2009 by 0.79. Nevertheless, the lowest point of quick ratio is in
2011 whereby it is valued to 0.34. Generally, we can say that a higher quick ratio is better
as it shows the company has a greater liquidity.
For Malaysia Airlines, the ratios for these years are less than one which specifies
that the company would not be able to pay all the debts by using its most liquid assets.
Quick ratios for 2011 decline because MAS borrow a lot of money which is
RM1,328,503. The increasing of liability had affected the performance of the financial
because the assets cannot cover the liabilities that MAS have.

3.3

Debt Management

3.3.1
Year

Debt to Total Asset

Debt to

Debt to Total Asset(%)

Total
2009
2010
2011
2012
2013

Asset(%)
92
72
91
87
81

100
80
60
40
20
0
2009

2010

2011

2012

2013

Source: Annual Report

Figure 3.3.1: Percentage of Debt to Total Asset for Malaysia Airlines FY 2009-2013
The trend shows above for the Debt to Total Asset for Malaysia Airlines is rather
consistent as the highest percentage is 92 percent in 2009 and also in 2011 by 91
percent and the lowest percentage is in 2010 by 72 percent.
The investors would prefer to see thee company to be in an ideal state of
having a debt ratio less than 50 percent as they can pay their liabilities by using
their assets. However, according to the figure above, we can say that Malaysia
Airlines is actually being finance by debt as all of the percentages of each year are
above 50 percent. Malaysia Airlines is carrying a surplus amount of debt in these
years which caused them to be in a higher financial risk. The average of the total
liabilities for five consecutive years is 20 percent and the average of the total
assets for the company is 19 percent. A company is supposed to have lower
percentage of average of the total liabilities that this will show the company is
able to manage their debt along with the assets used to pay the liabilities.

This high percentage of the debt to asset ratios for Malaysia Airlines may
cause a trouble towards the company to borrow more money and may need to pay
a higher interest rate on the loans.

3.3.2

Debt to Equity

Year

Debt to

2009
2010
2011
2012
2013

Equity
12.21
2.62
10.83
7.09
4.39

Debt to Equity
15
10
5
0
2009

2010

2011

2012

2013

Source: Annual Report

Figure 3.3.2: Debt to Equity for Malaysia Airlines FY 2009-2013
The figure above shows the debt to equity of Malaysia Airlines for the past five
years back. This ratio contain the same information of the previous ratio but present the
information slightly different (Koh, etc. 2014). As we can see here, the lowest point of
ratio would be in 2010 with 2.62 while the highest point is in 2009 and 2011 with
respective to 12.21 and 10.83.
In the year of 2010, it indicates a lower value of the ratio which leads to less risk
in the company during that year. However, in 2009 and 2011, they portrayed a higher
ratio which is very unfavorable because Malaysia Airlines depends highly on the other
lenders which may lead to higher degree of risk and have at higher interest rates. As the
value of debt to equity ratio is higher than 1, Malaysia Airlines assets are being financed
by debt and only half of it is being financed by the shareholders equity. Malaysia
Airlines is reflected as a highly leveraged company.